(Bloomberg) -- Investor confidence in Germany's economy plunged to its lowest level in almost a year after further signs of a deepening malaise in the key manufacturing sector.
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An expectations gauge compiled by the ZEW institute fell to 3.6 in September from 19.2 in August, a release Tuesday showed. Economists had expected a small drop to 17 and none foresaw such a slump. An index of current conditions also fell, to -84.5.
"The hope for a swift improvement in the economic situation is visibly fading," ZEW President Achim Wambach said in a statement. "Although the falling economic expectations for the eurozone point to an overall rise in pessimism, the drop in expectations for Germany is significantly greater."
The outlook for Europe's biggest economy has darkened after output surprisingly shrank in the second quarter amid a weak industrial performance. Consumers also remain hesitant to open their wallets -- even as incomes have been rising faster than prices.
The last few weeks have seen Germany inundated with bad economic news.
Volkswagen AG, its top automaker, announced it would end a decades-old labor pact and consider closing domestic factories, citing waning demand. Rival BMW had to cut earnings guidance due to a recall of 1.5 million cars equipped with potentially faulty brakes. And Intel Corp. has postponed a planned chip factory by about two years.
After a full-year contraction in 2023, economists have started lowering their predictions for this year as well. Some see stagnation or even another slight downturn. While subdued demand abroad is a key weakness, structural factors like adverse demographics, high energy costs and growing competition from China are also drags.
Monetary policy may provide some help after the European Central Bank cut borrowing costs for a second time last week. The Federal Reserve is expected to follow suit when officials meet Wednesday.
Even so, "most respondents appear to have already factored the ECB's interest-rate decision into their expectations," Wambach said.
--With assistance from Joel Rinneby and Kristian Siedenburg.